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Small business finishes 2012 on sour note

Australian small businesses face tough conditions and finished 2012 on a pessimistic note despite a series of interest rate cuts.

National Australia Bank’s quarterly Small and Medium Enterprise (SME’s) survey showed both confidence and trading conditions fell in the final three months of 2012.

National Australia Bank (NAB) said on Monday the decline in confidence and conditions occurred across small and medium business in all categories, though conditions were weakest in businesses with an annual turnover between $2 million and $3 million.

‘‘The deterioration was broadly based across all SMEs, though smaller firms continued to underperform their larger counterparts,’’ it said.

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‘‘The deterioration in activity reflected declines in profitability and employment, while trading conditions were unchanged.’’

Conditions fell two points to an index level of minus seven, NAB said, indicating a majority of SME’s that responded to the survey reported weakening conditions over the quarter.

Confidence also fell two points to an index level of minus seven, indicating pessimists outnumbered optimists among respondents.

NAB said the survey results showed the Reserve Bank of Australia’s (RBA) decision to cut the cash rate in October and December had not been enough to boost confidence among small and medium-sized businesses.

‘‘The weak tone of SME’s suggests that interest rate cuts towards the end of 2012 have done little to ease business concerns about the soft state of the local economy,’’ NAB said in a statement.

The RBA cut the cash rate a quarter of a percentage point in both October and December, bringing it to its current level of 3.0 per cent.

The NAB survey echoed similar results from the Australian Chamber of Commerce and Industry’s small business conditions index, also released on Monday, that showed a further decline in activity in the December quarter.

The index fell to 40.5 points in the December quarter from 40.7 in the previous three months, remaining well below the 50 mark that separates contraction from expansion.

ACCI chief economist Greg Evans said profitability was testing levels last seen during the 2008-2009 global financial crisis and selling prices were at historic lows.

‘‘The sector was under significant pressure over that period and it is certainly continuing to endure very difficult trading conditions,’’ he told reporters in Canberra.